Homeowners are losing thousands in equity thanks to weakening prices
A tightly packed area of new homes is viewed along the Boulder City Parkway in Henderson, Nevada, on January 11, 2022.
George Rose | Getty Images
Home values have been depreciating for much of this year, with previously huge annual gains dwindling to zero. As a result, homeowners lose equity.
According to a report from Cotality, borrower equity fell by 2.1% in the third quarter of this year compared to the same period a year ago, or a total of $373.8 billion. This follows years of steep increases in house prices and record equity capital. Even after the decline, homeowners’ total collective net equity for their mortgages is still $17.1 trillion.
For the average homeowner, equity declines in the third quarter amount to a loss of $13,400. Additionally, the number of homes in a negative equity position, meaning they are worth less than their mortgage, increased by 21% compared to the previous year, to 1.2 million.
“We are seeing a clear shift in equity trends as the pace of home price growth slows and markets readjust to the peaks of the pandemic,” said Selma Hepp, chief economist at Cotality. “Negative equity is on the rise, in part due to affordability challenges that have led many first-time and low-income buyers to become overleveraged through recourse loans or minimum down payments.”
Those with negative equity positions likely purchased their homes recently when mortgage rates were higher and prices were at their peak. Homeowners are also drawing more equity out of their homes, thanks to big gains over the past five years.
Home values are now about 52% higher than they were in January 2020, according to the S&P Cotality Case-Shiller national home price index. Even after mortgage rates increased in 2023, the average equity gain per homeowner was $25,000. In 2024, this figure was $4,900.
But not every market sees the same dynamic. Boston, Chicago and New York are all still positive, according to the Cotality report. The biggest losses were in Los Angeles, San Francisco, Washington, Miami and Houston, Texas.
“The future performance of highly leveraged loans will depend on the strength of the U.S. economy and labor market,” Hepp said. “Even as expectations remain that price appreciation and economic resilience will continue, it remains critical to monitor these loans closely in the coming months.”
